Can N.H.’s New Campaign Finance Rules Hold Up In Court?

The attack ads with the cartoon sheep began airing in May, followed by the negative mailers.

Paid for by a conservative nonprofit called Citizens for a Strong New Hampshire, they targeted Republican state senators who supported Medicaid expansion and a four-cent hike in the state gas tax. According to a spokesman, it was just the beginning of the group’s efforts to “fight” for a more fiscally conservative senate.

Based on the statement, if not the ads themselves, some people might conclude Citizens for a Strong New Hampshire’s primary purpose is political.

But Citizens, which formed early last year, is organized as 501(c)4 “social welfare” group. It describes its work as issue advocacy and voter education, for the purpose of promoting “strong families and a strong economy.”

The distinction is significant. Too much political activity - more than, say, half its operations - could threaten Citizens’ tax-exempt status. And as a 501(c)4, the organization doesn’t have to publicly disclose what it raises and spends to educate New Hampshire voters, unlike traditional political action committee, candidates and political parties.

That’s about to change.

A bill awaiting Gov. Maggie Hassan’s signature requires 501(c)4s and other politically active nonprofits to register with the Secretary of State’s office and report its receipts and expenditures.

As reforms go, the legislation - Senate Bill 120 - is relatively modest: it only applies to nonprofits that spend more than $5,000 a year, and it doesn't ask them to disclose the identity of individual donors.

But the new rules, which could affect the role tax-exempt groups play in the 2014 elections, are almost certain to trigger a political tug of war that could wind up in court.

Citizens for a Strong New Hampshire is the most vocal critic of the legislation. One of its ads singled out Republican Sen. Jeb Bradley, the lead sponsor of SB 120, accusing the Senate Majority Leader of wanting to silence the organization.

Also opposed to SB 120 is the local arm of the biggest 501(c)4 of them all, Americans for Prosperity, which is bankrolling its own direct-mail campaign aimed at Republican primary voters.

"I think the goal of the bill is to try and regulate issue advocacy,” he says. “And if that’s the goal, it’s obvious they have put themselves on a collision course with litigation.”

Dark Money Rising

Central to the debate over SB 120 is the complex - some say slippery - nature of political advertising.

It’s often difficult to separate genuine issue ads from “electioneering communications” - advertising that mentions a candidate, is aimed at likely voters before an election, but avoids words such as “elect” or “vote against.”

Unlike the federal government and 25 other states, New Hampshire doesn’t regulate electioneering communications, a loophole that has allowed nonprofits to run political ads under the guise of issue advocacy.

That’s what Democrats alleged in a complaint to the state Attorney General in 2010, after the National Organization for Marriage, a 501(c)4, launched an estimated $200,000 worth of television ads attacking Gov. John Lynch.

Citing Buckley v. Valeo, a landmark 1976 Supreme Court ruling, the AG said government had no business regulating the political speech of groups whose major purpose is not supporting or opposing candidates.

The anti-Lynch commercial didn’t even rise to the level of political advertising, the AG said, since it didn’t “expressly advocate” for the governor’s defeat at the polls, but merely asked people to visit a website called LynchLied.com.

Dark money flooded statewide elections in 2010. The Concord-based Coalition for Open Democracy, which supports publicly financed elections, estimates special interest groups dropped anywhere from $3.5 million to $10 million, only $60,000 of which was reported to the Secretary of State.

The steep rise is attributed to the U.S. Supreme Court, whose decision in Citizens United lifted the ban on election spending by unions and corporations, including tax-exempt corporations. The ruling had the effect of encouraging big donors to direct more money to politically active nonprofits that can shield their identities.

“Right now, we don’t know where a lot of that money is coming from, and that’s valuable information to the voters,” says Sen. David Pierce, a Democrat from Lebanon and chairman of the subcommittee that worked on SB 120. “If I know that an ad is paid for by the Communist Party of America, then I know not to give that ad any credibility because it doesn’t line up with my political orientation.”

Pierce says Citizens United triggered a “groundswell of support” in New Hampshire for more transparency.

Indeed, 72 percent of likely voters oppose the decision, according to a 2013 poll by the UNH Survey Center, including more than half the Republican respondents. And earlier this year, 52 towns in the Granite State passed resolutions asking state lawmakers to support a constitutional amendment to overturn Citizens United.

In May, legislation to make New Hampshire the seventeenth state to call on Congress to support the amendment easily passed the House. But a watered-down Senate version of the bill - to study the impact of Citizens United and make recommendations to the state’s Congressional delegation - died in conference committee.

Let There Be Light

Pierce co-sponsored a bill last year to regulate electioneering communications that was referred to interim study. Aware of concerns that requiring nonprofits to disclose their spending was unconstitutional, he took a different approach with SB 120.

In January, Pierce asked the Attorney General’s office to review a proposed amendment modeled on Maine’s statute. The law requires an organization that “does not have as its major purpose promoting, defeating or influencing candidate elections” to register as a PAC if it spends more than $5,000 - language that’s nearly identical to that in SB 120.

The National Organization for Marriage, which spent more than $1.8 million in 2009 on a failed effort to overturn the state’s same-sex marriage law, challenged the statute. A district court upheld the law, and NOM appealed.

“These provisions neither erect a barrier to political speech nor limit its quantity. Rather, they promote the dissemination of information about those who deliver and finance political speech, thereby encouraging efficient operation of the marketplace of ideas.”

The First Circuit panel even drew upon Citizens United, in which the Supreme Court acknowledged that disclosure laws “appear to be the least restrictive means of curbing the evils of campaign ignorance and corruption.”

Paul Ryan, senior counsel with the Campaign Legal Center, says the Maine case is one of more than 30 legal challenges to state and federal disclosure laws since Citizens United. In more than two dozen of those cases, he says, the statutes were upheld by courts that invariably cite Citizens United as precedent.

“The court was very explicit in Citizens United that voters have a right to know when they walk into the voting booth whose money has been raised and spent to try to influence their vote,” Ryan says.

Pierce also asked the AG’s guidance on another key question: When does issue advocacy cross the line into express advocacy?

In his response, Assistant Attorney General Stephen LaBonte noted the Supreme Court created two categories of political advertising: communications that contained certain words, such as "vote for," "cast your ballot for" "defeat" or "reject,” were express advocacy and subject to regulation. Absent such "magic" words, the ads were issue advocacy and beyond the reach of federal election law.

That standard was upended by Congress with the Bipartisan Campaign Reform Act of 2002. Better known as McCain-Feingold, the law prohibited ads that name a specific candidate in the run-up to an election.

But in FEC v. Wisconsin Right to Life, a 2007 case, the justices rejected the idea that simply mentioning a candidate’s name amounted to express advocacy. Instead, Chief Justice John Roberts wrote, an ad is “the functional equivalent of express advocacy only if the ad is susceptible of no reasonable interpretation other than as an appeal to vote for or against a specific candidate.”

In his two-page response to Pierce, LaBonte suggested that the more closely SB 120 matched the language in Wisconsin Right to Life, “the more likely the New Hampshire statute would be upheld.”

On February 6, the Republican-controlled Senate approved SB 120, 19-4. Along with the 11 Democrats in the senate, eight Republicans backed the bill, which adopted Chief Justice Roberts’ “functional equivalent” language, to the word.

Late-Breaking News

It's safe to say reasonable people can disagree on what a "reasonable interpretation" of an ad is. Nonetheless, SB120 appeared to be on solid ground following the senate vote. On May 14, the Democratic-controlled House passed the bill by a 186-119 margin.

But that same day, the Seventh Circuit Court of Appeals in Chicago cast doubt on the bill's legal foundation.

In another case involving Wisconsin Right to Life, a three-judge panel struck down Wisconsin’s disclosure requirement for groups that do not have express advocacy as their major purpose. The judges concluded that PAC-like disclosure for nonprofits is unconstitutional and that “ordinary political speech about issues, policy and public officials must remain unencumbered.”

The Campaign Legal Center's Paul Ryan says the Seventh Circuit’s decision surprised many campaign-finance observers, since the same court upheld similar provisions in Illinois’ law in 2012.

"It was a wrongly decided, badly written decision that does not accurately interpret the Supreme Court’s decision in Citizens United and other cases,” Ryan says.

Perhaps. But it apparently spooked some New Hampshire lawmakers.

Eight days later, when the Senate met for the final vote on a House version of SB 120, six Republicans and one Democrat jumped ship, narrowing the margin of victory to a single vote, 12-11.

Sen. Russell Prescott was one of the Republicans who supported the bill in February, only to change his mind in May. “It didn’t really align itself to proven court cases,” he says. “There is a certain distance you can go [to regulate issue advocacy], and this bill went further than that. That was my concern.”

In a statement, Derek Dufresne, a spokesman for Citizens for a Strong New Hampshire, suggested the organization has no intention to abide by the new disclosure requirements.

"Citizens for a Strong New Hampshire will continue to stand by the First Amendment of the Constitution,” Dufresne said. “With regards to our legal efforts on SB 120, we are leaving all options on the table."

Greg Moore, of the New Hampshire chapter of Americans for Prosperity, says the Wisconsin case was a clear win for the protection of issue advocacy. He says, given “the direction federal court rulings are taking,” SB 120 will prove difficult for the state to enforce.

“The first test will come when they attempt to apply it to a group and say, ‘This is the functional equivalent of express advocacy,’” Moore says. “If that’s used in an attempt to regulate issue advocacy, well, I don’t think anyone knows what that means right now.

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The proposal, which cleared the Senate by a 19-4 vote February 6, would require any organization that spends more than $5,000 on so-called electioneering to filed detailed reports with the Secretary of State's office.

Voters at town meetings across New Hampshire approved resolutions urging state lawmakers to join a nationwide effort to overturn Citizens United, the U.S. Supreme Court decision that struck down limits on political spending by corporations, labor unions and special interest groups.